Why VCs Suck at Investing in Online Shopping

January 22, 2016

Trouble-With-VCs-Pressure

One thing that Venture Capitalists seem to fail at miserably is investing in online shopping sites. Why, you might ask? The bottom line is that only 4% of VCs are women and they are investing in an industry where 60-70% of the end users are women. It doesn’t take a rocket scientist to see there could be some issues happening here. This is just one reason why VCs suck at investing in online shopping.

One Kings Lane

Techcrunch nailed it when they exposed the catastrophic failures of some well-known online brands like Groupon and One Kings Lane.  Oh, you haven’t heard about One Kings Lane? It hit the online shopping scene a few years back with a beautiful site design geared towards affluent women. Everything seems to be a bit higher priced here with a perceived discount. Last time I checked, most affluent women weren’t clipping coupons. The good thing that One Kings Lane had going for it was that it had really hard to find items. If you couldn’t find what you were looking for on Amazon or One Kings Lane, you might never find it in the online world. One Kings Lane isn’t dead yet, but it is being sold for a rumored $150 million, not bad when you take into count that the company raised $225 million and at its highest valuation, was worth over $1 billion.

Groupon

Groupon failing to meet investors predictions is not breaking news. Groupon started failing because they changed part of their business model. Instead of bringing consumers hot-of-the-presses deals, they started to be a place where businesses just listed their year-round discounts disguising them as these huge savings. Then businesses and restaurants started to go out-of-business when the market turned and Groupon had to refund all that cash. Let’s also not forgot that they told the affiliates that helped build them that they were slashing their commissions to almost zero and there went their on-the-streets advertisers. When Groupon went through their IPO they were worth $12.6 billion and had $1.14 billion invested capital. For a better illustration, try this: Their stock price at IPO was $16.11 and today it is less than $3 a share!

There are easily a dozen other examples of where VCs invested in small-to-medium sized businesses trying to scale them to be large businesses. The VCs wanted more out of their investments than the founders could deliver. Next time, bring the demographic that you are trying to hit, in this case – women, to the VC table before investing millions.

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